BAGHDAD -- Negotiations between Iraq's two most powerful political blocs broke down Monday, dashing hopes that a solution to a more than five-month impasse after national elections was on the horizon.

The Sunni-and-secular-backed Iraqiya coalition of former Iraqi premier Iyad Allawi called off talks with Prime Minister Nouri al-Maliki's Shiite-backed State of Law alliance after the Shiite incumbent called them a "Sunni" group in an interview.

The move by Allawi's group further isolates Maliki, who is intent on staying in power. This month a coalition of Shiite groups also halted talks with Maliki's group.

The decision to stop negotiations comes just two weeks before U.S. forces will shrink to 50,000 troops. As the U.S. military discusses the "end" of the Iraq war, the nation's future is unclear. There is still no government, government office functions are lagging and hundreds are dying in attacks each month.

"We think they are not serious in their negotiations with us or with other groups to form a national unity government," said Falah al Naqib, an Iraqiya legislator. "While it's true we represent many Sunnis, it doesn't mean we're not a national group. They want to bring Iraq back to a sectarian problem."

The U.S. presence here is also in transition. Chris Hill, who had been U.S. ambassador, left his position this month, and the top U.S. military commander in Iraq, Gen. Ray Odierno, will give up command Sept. 1. In Washington, U.S. officials are scrambling to prepare for the transition. Officials acknowledged Monday that they had reduced the number of diplomatic facilities they will maintain in Iraq because of budget pressures. In addition to the embassy in Baghdad, the State Department will operate consulates in Basra and Irbil and temporary offices in Kirkuk and Mosul, officials said.

"We have had to scale back, to a certain degree, what we want to do," Michael Corbin, the deputy assistant secretary of state for Iraq, told reporters. "But we believe this presence will meet the needs and will be able to show our . . . diplomatic outreach."

The State Department is struggling with high security costs.

Departing military forces will probably hand over several dozen armored vehicles for the diplomats' use but will not leave as many helicopters as the State Department had requested, a Pentagon official said at the briefing, because they are needed in Afghanistan.

U.S. officials had supported a power-sharing agreement between the top two elected blocs in hopes that it would break the political impasse, including the creation of another federal position for Allawi. But negotiations are slowly breaking down.

Allawi and Maliki both claim the right to form Iraq's next government, based on varying interpretations of the constitution. Secular Shiite Allawi's coalition won the most seats in the March 7 national election by a slim margin over Maliki's bloc. Neither has the alliances needed for the simple majority vote in parliament to form the government.

The U.S. mission in Iraq played down the latest move as political posturing. "Our goal is to see an outcome which is a reflection of the March elections, and a power-sharing agreement between the two of them would reflect the vote," a U.S. official said. "But ultimately this is up to the parties, not to us."

The Iraqiya bloc said it would not resume talks without an apology from Maliki. But the disagreement runs deeper than semantics. On Monday, Maliki's State of Law group also rejected a request by Iraqiya to consider a power-sharing agreement.

"Maliki wants to stay as a prime minister," Naqib said. "We need him to be more serious. We froze talks for the time being."

Maliki said in an interview this month with state-owned television: "They want a weak prime minister, not a strong one. But if you don't have a strong prime minister, the country will start to disintegrate and the warlords will reappear."

Sheridan reported from Washington. Special correspondent Aziz Alwan contributed to this report.